Economic resilience expected to counter slowdown

BEIJING -- Chinese scholars have urged the government to deepen reforms and increase the resilience of the economy as growth in the world's second-largest economy has slowed for a sixth quarter, rising 7.6 percent year-on-year during the April-June period.

Wang Tongsan, an academian with the Chinese Academy of Social Sciences, a government think tank, attributed the downward adjustment to external sources, citing weakening consumption and hovering unemployment in the US and the European sovereign debt crisis.

"Compared with other emerging economies and BRIC countries, China has scored a fairly good performance amid the global economic downturn," he said.

The Asia Development Bank revised and decreased its growth projections for China and India to 8.2 percent and 6.5 percent, respectively, on Thursday, but maintained a 5.2-percent growth prediction for southeast Asia.

Russia's central bank cut the country's growth target from 3.7 percent to 3.4 percent in April, while Brazil's central bank forecast a slower growth of 2.05 percent.

"Unless the European sovereign debt crisis worsens drastically, it will not be difficult for China to achieve the year's 7.5-percent growth target, as the country has a great deal of leeway to stimulate the economy through both fiscal and monetary policies," said Wang.

"The possibility of an economic hard landing should be ruled out," said he.

In response to the subprime crisis that originated on Wall Street in 2008, China adopted a stimulus package and posted a fiscal deficit of 950 billion yuan, equivalent to three percent of its total gross domestic product. The budgeted fiscal deficit for this year, however, is around 800 billion yuan, about 1.5 percent of the GDP.

China's reserve requirement ratio - the amount of cash banks are required to hold as reserves - stands at 20 percent after being reduced three times since November. The ratio stood at 17.5 percent when China was hit by the 2008 US financial crisis.

The benchmark one-year deposit rate was cut by 25 basis points to 3 percent earlier this month, leaving room for further reductions to bolster the economy, as the index stood around 2.1 percent in 2008, Wang said.

"The US financial crisis hit China suddenly, while the European sovereign debt crisis is more like a chronic illness. To deal with the latter, the government must work hard to balance the immediate target of preventing a drastic slowdown and the long-term goal of achieving sustainable development," said Wang.

Zhuang Jian, senior economist with the Asia Development Bank's Resident Mission in China, said the purpose of coordinating the two goals is to "integrate long-term restructuring plans into immediate measures to stabilize economic expansion".

"An economic slowdown is not all bad. Even a growth rate lower than 7.5 percent is acceptable if progress is made in industrial restructuring," said Zhuang.

Wang agreed that the slowdown has created a good opportunity to press ahead with industrial restructuring.

"When the economy registers double-digit growth, people tend to shrug off the idea of reforms. When situations get difficult, however, external pressure and self-motivation will combine to create change," said Wang.

Zhuang said the real concern should be creating long-term resilience, as a changing demographic structure is eroding the country's labor cost advantage.

To avoid excessive dependence on external environments, China must bolster domestic demand. Investment, another powerful engine for economic expansion, must be used intelligently to facilitate the restructuring, said Zhuang.

Earlier this week, Premier Wen Jiabao said at a symposium attended by economic scholars and corporate executives that the "most pressing task" in stabilizing economic growth will be to facilitate investment for the good of the people's livelihoods and scientific development.

"This is an informed decision and a pertinent judgement about the problem," said Zhuang, listing agricultural infrastructure and rural water conservancy, urban public transport, sewage disposal, railway networks, education, public health, medical care and modern service industries as areas where investment is needed.